Kentucky has established a Road Fund tax structure that is partially based on the principle that the system users pay their fair share of the costs associated with maintaining a safe and efficient highway system in Kentucky. Several of the most important sources of Kentucky’s road fund revenues derived from commercial trucking are dependent on the self-reported tax liabilities submitted by trucking firms. Self- reporting and the interstate nature of this industry allows for the possibility of tax evasion either due to fraudulent behavior or processing errors. To ensure the integrity of the system, the Revenue and Transportation Cabinets have an ongoing audit system. The effectiveness of the audit process depends, to some degree, on estimates of overall tax liabilities. These estimates allow the auditors to focus their efforts and resources at areas perceived to require attention, allowing for an efficient administration of tax enforcement. In the case of motor carriers, effective estimation tools are required in order for tax administrators and auditors to know how many tax dollars are owed to the state from commercial trucking taxes. Only with effective estimation models can evasion be observed and effectively combated.

The focus of this report is the effectiveness and reliability of the current models employed to calculate the weight-distance tax and fuel surtax liabilities. As currently constituted, these models suggest that there may be a significant difference between estimated tax liabilities and revenues actually collected from these taxes. This report examines the current methodology utilized to estimate potential tax liabilities to determine if such estimates may be enhanced and verified. It also raises some questions regarding the sampling methods utilized in the models that determine the frequency distribution of heavy carrier registered weights on Kentucky’s roadways. The critique concludes that the current methodology has limitations, which may lead to less than reliable results and, as a consequence, total commercial truck tax liability estimates may be either overstated or understated.

Also, this report was tasked with exploring the possibility of using other data as a means of developing alternative models to calculate the aforementioned tax liabilities. The interested parties were especially intrigued by the possibility of utilizing data from the International Fuel Tax Agreement (IFTA) and the Kentucky Intrastate Tax (KIT) reports to estimate the weight-distance tax liability. This report suggests that it is unlikely that these reporting mechanisms will provide the necessary data to provide the foundation for an effective estimation tool.

Furthermore, during the course of this report’s investigation, the authors were made aware of the Automatic Traffic Recorder (ATR) system. This system is used by the KYTC Division of Planning to capture axle-configuration and weight data of vehicles on Kentucky highways. It was suggested by the administrators of this system and other related experts within the KYTC that—given reasonable assumptions—this system could provide a robust frequency distribution of vehicle registered weights on Kentucky’s roadways.

As a result, this report recommends that the Kentucky Transportation Center and the appropriate staff from the KYTC determine the validity of the ATR data as an alternative means of calculating a distribution of registered weights. If that data proves to be a valid source for determining the relevant proportions, this report recommends using those new proportions as a revision within the current model to calculate the weight- distance tax and heavy vehicle surtax liabilities.

The revised model could be used alongside the current model with each serving as a “check” on the other model’s results. If they produce similar results, then the estimates should be received with a high level of confidence. If they produce different results, then the interested parties should embark upon additional study to determine the validity of each and attempt to reconcile their results.

Additionally, an alternative model is proposed as an additional “check” on weight-distance calculations. However, significant questions are also raised surrounding the methodology of this proposal and, therefore, it is suggested that the results of this model be accepted with skepticism.

Finally, additional areas that should be targeted for further research are proposed.

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The contents of this report reflect the views of the authors, who are responsible for the facts and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the University of Kentucky, the Kentucky Transportation Cabinet, nor the Federal Highway Administration. This report does not constitute a standard, specification, or regulation. The inclusion of manufacturer names or trade names are for identification purposes only and are not to be considered as endorsements.